Saving+Insurance product for WP

[CP3]

I would like to get some suggestions on the attached product. Can a WP holder get a saving+insurance product? The girl at the bank kept saving no problem. As understand from her, the insured amount is 1.5mil and only need to pay for 5years and no need to pay anymore and the contract is active until 85 years of age. And the fourth column is for surrender value. As I don't understand thai, is there any T&C or any hidden things that I need to aware of? Appreciate your kind input.

[Overcome]

There is no reason why there would be any restriction on a foreigner taking out such a plan.

This style of life insurance where cover plus a savings component are bundled together has almost vanished from western markets - for a range of reasons which all revolve around the fact that despite the outward impression this us attractive when it is put to the test this style is poor value and inflexible for the customer.

But it's a winning combination for the insurer and the agent - in this case the bank. Now for the dirty inside secrets.

The economics of this type of contract are built on at least three things the insurance company knows beyond a shadow of doubt but the client is normally blissfully unaware.

The first thing is that its costs to you are front end loaded which you can see in the premium vs surrender value - year 1 you pay over 100k in premiums and your surrender value is less than 8k and after 2 years and 200k in premiums your surrender value of less than 70k means more than 140k of your money has been taken in fees - probably 100k to the bank in commission and the insurer takes the rest spinning the line that you have to pay the set up costs and it's actually cheaper to front end load a plan than charge annual fees at a higher level for the next 50 years.

The second thing the insurance company knows all too well Is that the average life span of this style of contract is between 5 and 7 years, and with half of the contracts hone by year 7 the rest fall off year after year leaving only a paltry few running the full course.

The profit margin is huge for policies that last 5 or 10 years because the insurer has up front captured the majority of the expected profits over a 50 year contract and this all gets crystallized within 10 years or less. It's cynical and shabby but that's how the company makes serious money and it's in their interests for you to surrender early - but they pretend otherwise.

The third thing they know and hope you don't is the amazing effects of compound interest and the long term investment return expectations for the economy. They are banking on you not making any comparison between their projection and what you could achieve in an alternative.

From year 5 onwards they are projecting an annual net return of 3% after the cost of the annual life cover of 1.5 million baht which is negligible. For 45 years they have to give you 3% a year while they are free to use your money to make whatever they can - and pocket the difference.

But the real problem is the way compound interest works the fact that your first few years see your money pillaged without mercy and the lost value when it is projected over many decades is huge.

If after year 1 you received even 3% on your 100k invested instead of interest on just 7.5k, and this was repeated in the second and third years it may not appear huge at the year 3 mark but if you start projecting this 20 it more years ahead it will become a bigger and bigger paper loss. Wherever you come from in your home country this sort of plan is un-sellable partly because it's just so poor but also most likely regulations would not allow such a contract to be offered and even if it were the person selling it would end up in prison for what effectively amounts to a scheme to defraud you in order to get paid a commission.

But every insurance company on the planet, given the chance, will go for the jugular in developing markets and cream super profits from this sophisticated Ponzi scheme as long as they are able.

By now you're perhaps wondering if I think this is a good investment or not. Well, if you are the insurer or the bank it's a winner. But if you are the customer it's like being mugged, beaten and left penniless in the gutter while the perpetrators get in their BMW's and head off to their Rotary meeting.

Your options? For Pete's sake stay clear of the offshore and unlicensed agents and investment advisers many of whom place ads on this website and monopolize Google searches because the Thai expat community is to them what the annual migration of fur seals is to a pod of Orcas.

Take on a regular contribution non contractual savings plan and buy term life cover. Talk to a reputable Thai registered investment adviser or broker or one in your home country.

Never deal with an adviser outside your country if residence or your home country - and never with an adviser operating in Thailand that is mot fully authorised and licensed by the local regulators - Thailand is one of the places that has more than its fair share of less than ideal advisers. Oh and don't fall for the impression that your bank has any regard for your best interests and needs, and you should always treat insurance companies the way a lion tamer treats his lion - never turn your back or put yourself in a position of vulnerability unless you want to get eaten.

[stevenl]

Agree, but don't think it is a Ponzi scheme of any sort.

[Overcome]

Agree, but don't think it is a Ponzi scheme of any sort.

Yes, fair enough - I was getting a bit carried away.